Legislature(2003 - 2004)
03/31/2003 03:39 PM Senate RES
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* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 31, 2003
3:39 p.m.
MEMBERS PRESENT
Senator Scott Ogan, Chair
Senator Thomas Wagoner, Vice Chair
Senator Fred Dyson
Senator Ralph Seekins
Senator Ben Stevens
Senator Kim Elton
Senator Georgianna Lincoln
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 139
"An Act repealing the termination date of the Alaska salmon
price report program; and providing for an effective date."
MOVED SB 139 OUT OF COMMITTEE
SENATE BILL NO. 122
"An Act relating to an annual wildlife conservation pass and the
fee for that pass; relating to nonresident and nonresident alien
big game tag fees; and providing for an effective date."
HEARD AND HELD
CS FOR HOUSE BILL NO. 16(FIN) am
"An Act amending, for purposes of the Alaska Stranded Gas
Development Act, the standards applicable to determining whether
a proposed new investment constitutes a qualified project, the
standards used to determine whether a person or group qualifies
as a project sponsor or project sponsor group, and the deadline
for applications relating to the development of contracts for
payments in lieu of taxes and for royalty adjustments that may
be submitted for consideration, and modifying the conditions
bearing on the use of independent contractors to evaluate
applications or to develop contract terms; providing statements
of intent for the Act relating to use of project labor
agreements and to reopening of contracts; and providing for an
effective date."
HEARD AND HELD
PREVIOUS ACTION
SB 139 - No previous action to record.
SB 122 - See Resources minutes dated 3/28/03.
HB 16 - No previous action to record.
WITNESS REGISTER
Mr. Ian Fisk
Staff to Representative Ogg
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Presented SB 139
Mr. Bruce Schactler
United Salmon Association
PO Box 2399
Kodiak, AK
POSITION STATEMENT: Supports SB 139
Mr. Jerry McCune
United Fishermen of Alaska
211 4th Street, Suite 110
Juneau, Alaska 99801-1172
POSITION STATEMENT: Supports SB 139
Mr. Gordy Williams
Special Assistant
Department of Fish & Game
PO Box 25526
Juneau, AK 99802-5226
POSITION STATEMENT: Presented SB 122 for the Administration
Ms. Michelle Sydeman
Assistant Director
Division of Wildlife Conservation
Department of Fish & Game
PO Box 25526
Juneau, AK 99802-5226
POSITION STATEMENT: Answered questions about SB 122
Representative Hugh Fate
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 16
Ms. Wendy King
Conoco Phillips Alaska, Inc.
P.O. Box 100360
Anchorage, Alaska 99510
POSITION STATEMENT: Supports HB 16
Mr. Mark Myers, Director
Division of Oil and Gas
Department of Natural Resources
550 W. 7th Ave. Ste 800
Anchorage AK 99501-3560
POSITION STATEMENT: Supports HB 16
Mr. Dan Dickinson
Tax Division
Department of Revenue
550 W 7th Ave.
Anchorage, AK 99501-3566
POSITION STATEMENT: Answered questions about HB 16
ACTION NARRATIVE
TAPE 03-20, SIDE A
CHAIR SCOTT OGAN called the Senate Resources Standing Committee
meeting to order at 3:39 p.m. Senators Wagoner, Stevens,
Seekins, Elton and Ogan were present. Senator Lincoln arrived
momentarily. The committee took up SB 139.
SB 139-AK SALMON PRICE REPORT PROGRAM
MR. IAN FISK, staff to Representative Ogg, told members he has
been working with Senator Dyson on SB 139 and presented it to
the committee as follows.
SB 139 repeals the sunset date of a Department of Revenue (DOR)
program called the Alaska Salmon Price Report (ASPR). Under the
ASPR, processors who sell over 1 million pounds of salmon
products in one year are required to report to DOR the wholesale
prices they receive for those products. This report is due three
times per year: January 31, May 31, and September 30. It details
monthly and annual average wholesale prices sorted by salmon
species, by product form, and by the eight regions in which the
salmon are produced. The ASPR allows government agencies and
industry analysts to estimate inventory of Alaska salmon and it
provides data that is helpful in negotiations between harvesters
and processors. DOR issues an annual report to the legislature
to enable legislators to see what is being done with a public
resource. The statute sunsets on July 1, 2003. The sponsor
believes the ASPR program should be a permanent function of DOR
so SB 139 repeals the sunset date.
CHAIR OGAN asked if SB 139 will make this law permanent.
MR. FISK said that is correct.
CHAIR OGAN pointed out that the bill has no fiscal note because
the program is currently funded with federal money. He asked
what will happen if the federal money dries up and the state has
an obligation to fund it with general fund monies.
MR. FISK said that is a good question. He noticed today, when
the fiscal note was delivered, that the Tax Division has
proposed changing the funding source to [federal] salmon treaty
fund money appropriated to the Alaska Department of Fish and
Game (ADF&G). He said to his understanding, that is a stable
source of funding but he has not spoken with anyone in the
department about it.
CHAIR OGAN pointed out that if the federal money is not
received, the cost to the state would be $50,000 per year.
MR. FISK said that is correct, according to DOR.
SENATOR BEN STEVENS explained that the Pacific Salmon Treaty is
an international treaty that has been in effect for many years
and is likely to be funded for many years to come. He noted that
as long as the treaty is in effect, Alaska will continue to be a
recipient of funds. He also said the original salmon price
report contained price information and was funded by the Alaska
Seafood Marketing Institute (ASMI).
MR. FISK said he believes that was the case with the wholesale
price report, which was changed to the ASPR when more data was
required. He understands the funding no longer comes through
ASMI, it comes through the salmon market information service,
which is provided by ASMI.
CHAIR OGAN pointed out if there is a question about the fiscal
note, it is more appropriate that the Senate Finance Committee
examine it. He then took public testimony.
In response to a question by Chair Ogan about whether there is a
compelling need to continue the ASPR, MR. BRUCE SCHACTLER,
testifying from Kodiak, told members that he would question
whether the report actually costs $50,000 per year. He noted the
only reason fishermen are as informed as they are about prices
for different products is because of the ASPR. The ASPR is the
only database close to real time that provides this information.
The price report is authored by the McDowell Group and is used
by ASMI, the National Marine Fisheries Services (NMFS), the U.S.
Departments of Agriculture and Commerce, the University of
Alaska, the University of Washington, a host of academic
entities, the legislature and hundreds of individuals.
MR. JERRY McCUNE, Executive Director of the United Fishermen of
Alaska (UFA), stated support for SB 139 because the ASPR
provides a good snapshot of what products are going where.
CHAIR OGAN asked if the ASPR is an appropriate state function or
whether it should be supported by UFA.
MR. McCUNE said that would be difficult for UFA to do because
DOR gathers the information, most of which is confidential. He
added that UFA does not have the staff or funds to produce the
report.
SENATOR WAGONER moved SB 139 and its zero fiscal note from
committee with individual recommendations. With no objection,
CHAIR OGAN announced the motion carried.
SB 122-NONRES.GAME TAG FEES/WILDLIFE TOUR PASS
MR. GORDY WILLIAMS, special assistant, Alaska Department of Fish
and Game (ADF&G), explained to members that SB 122 contains two
parts. The first part establishes a $15 wildlife conservation
pass for certain visitors who use a commercial opportunity to
view wildlife. The second part raises non-resident alien big
game tag fees for certain species. He provided the following
statement:
The Administration believes it is appropriate for a
broad range of visitors to the state to make
contributions to the management of our wildlife
resources. Historically, hunters, fishermen and
trappers have provided the bulk of the funding and we
think it is appropriate that those who are coming to
the state - visitors - help out in that regard when
they're viewing our wildlife. About 1.5 million
visitors come to Alaska annually and the opportunity
to view wildlife is an important part of that
experience for many of them.
The wildlife conservation pass will raise a little
over $7 million annually at the beginning. As provided
in the bill, those revenues will be deposited into a
separate account in the general fund and appropriated
for various wildlife management programs and other
uses.
The pass establishes a requirement for nonresidents
who use a commercial provider of an opportunity to
view wildlife to have one of these passes unless they
qualify for one of the exemptions in the bill. Alaska
residents are exempt from this requirement; all
persons under 16 are exempted; disabled veterans are
exempted; travelers on the marine highway system are
exempted; and any visitor who holds a hunting, fishing
or trapping license good for that year would also be
exempt. We believe that people who come to the state
should make a contribution to wildlife management. If
they're making it through the purchase of a hunting or
fishing license, than that is a contribution enough
[so] that showing that license will allow them to take
the commercial tours.
MR. WILLIAMS said ADF&G believes a portion of the additional
revenue raised can assist the state in reaching match
requirements for the federal-state wildlife grant program.
Alaska receives about $3.9 million under that program. ADF&G is
currently in a planning phase with that funding, which means the
state is only matching it at a rate of 1:3. Once the programs
are implemented, the match rate will increase to 1:1.
He explained that the second part of the bill will raise tag
fees for non-residents and non-resident aliens for caribou,
moose, sheep, and goat in varying amounts from $50 to $100.
Alaska's tag fees fall in the mid-range when compared to fees
charged by other Western states. The Governor believes it is
appropriate to increase these fees for non-residents and non-
resident aliens. He offered to answer questions.
SENATOR ELTON asked Mr. Williams why programs like fish and
wildlife protection or the promotion of tourism were precluded
as appropriate uses of the fund that these fees could be
deposited into.
MR. WILLIAMS said nothing has been excluded as the money will be
deposited into the general fund and the legislature has
appropriation powers.
SENATOR ELTON noted that SB 122 specifies three purposes for
which the legislature intends to use those funds.
MR. WILLIAMS said that ADF&G believes it can make good use of a
portion of these funds but it will be under the purview of
future legislators to decide exactly how the funds are spent.
CHAIR OGAN stated the separate accounting language really pushes
the limits but will have no effect due to the constitutional ban
on dedicated funds. He added if the legislature is going to
raise taxes, he believes the money should go into the general
fund to be used to offset the budget gap.
SENATOR WAGONER asked whether vendors who do not submit the
collected fees to the state will be subject to penalties and
whether any enforcement will be available.
MR. WILLIAMS said that is not specifically addressed in SB 122
but, by adding the wildlife conservation fee to the list of
licenses in the bill, violators will be subject to the same
penalties that apply to a vendor who does not submit revenues
raised from the sale of sport fish licenses. He offered to
provide specific information at a later date.
SENATOR WAGONER noted that vendors will also be collecting the
fees, not just those who sell hunting and fishing licenses. He
asked if a person who runs raft trips will sell the $15 permit
to his or her customers.
MR. WILLIAMS said those business owners will become vendors. He
pointed out that ADF&G has about 1500 vendors who sell fish and
game licenses statewide. ADF&G anticipates that number will
increase significantly if this bill passes because a lot of
tourist operators will want to sell these licenses.
CHAIR OGAN noted the presence of Representative Kohring.
SENATOR SEEKINS asked how much money SB 122 is anticipated to
raise per year.
MR. WILLIAMS said about $7.5 million in FY 04.
SENATOR SEEKINS asked how much revenue ADF&G receives from the
sale of fish and game licenses each year.
MR. WILLIAMS did not have that information and offered to
provide it at a later date.
SENATOR SEEKINS said it appears to him that the only new purpose
for which this fund would be used is for wildlife viewing. He
asked if ADF&G is currently using any fish and game fees that it
collects for viewing programs.
MR. WILLIAMS said the short answer is yes, for the match of the
state wildlife grant funds. He then deferred to Ms. Sydeman for
the specifics.
MS. MICHELLE SYDEMAN, Assistant Director of the Division of
Wildlife Conservation, told members that ADF&G does not
currently use fish and game funds to match the federal funds it
receives for wildlife viewing programs. The source of the
matching funds for those programs are receipts from the McNeil
River bear viewing area, Pack Creek, and the Round Island walrus
viewing area.
SENATOR SEEKINS asked if, under current statute, the receipts
from viewing areas can be used as a match for federal funds.
MS. SYDEMAN said they can.
SENATOR SEEKINS asked if SB 122 will just add another category
from the $7.5 million that can be used for matching funds for
those same purposes.
MS. SYDEMAN said the difficulty that Mr. Williams spoke about is
due to the fact that under the statute that pertains to receipt
of the federal funds, the state match rate is 1:3 while wildlife
viewing programs are in the planning phase. As ADF&G moves into
the implementation phase, the required match rate will increase
to 1:1. In addition, ADF&G does not have an adequate source of
matching funds for research or management of non-hunted species
or for any of ADF&G's education programs.
SENATOR SEEKINS asked:
In the total universe of funding that comes to the
department, what percentage would this add? If we were
to pass this, let's say, you know kind of on a weak
manner, as the Chairman said, that you may use these
funds for this purpose, how much as a percentage would
that add to the budget that you are already getting
from these various sources of federal funds - Pittman
Robinson funds, fish and game funds, etcetera, that
are dedicated now to the department?
MS. SYDEMAN replied it is her understanding that the division's
budget totals about $25 million. ADF&G's request to the
administration and to the legislature would be for a portion of
these funds. ADF&G has stated a hope that if this bill passes,
some of this money might be made available to match the state
wildlife grant money. She thought the fees might amount to $3
million of the division's total $25 million budget.
SENATOR ELTON referred to page 1, line 10, and asked what the
breakdown is between state general funds, federal, and other
funds for the wildlife management program.
MS. SYDEMAN said the Division of Wildlife Conservation does not
receive any general funds at this time. It receives about $8
million of fish and game funds, primarily from the sale of
hunting and trapping licenses and other tag fees. It also
receives about $8 million of Pittman Robinson money.
SENATOR ELTON commented that SB 122 makes it sound as if the
fees will replace general fund dollars, while it will actually
add dollars to a program that does not get any general fund
dollars. He then noted that about 800,000 people will visit
Alaska on cruise ships this year. Those ships have programs in
place to collect receipts for onshore tours, a portion of which
is remitted to the businesses. He felt this legislation will
give the cruise ships the opportunity to collect up to $500,000
for something they are already doing. He asked if that is
correct.
MR. WILLIAMS said that cruise ships provide an opportunity to
view wildlife so cruise ship passengers will have to pay this
fee or be exempted when they enter Alaskan waters.
SENATOR ELTON asked if those licenses will be sold by the cruise
ship operators, who will retain $1 for each license.
MR. WILLIAMS said they would be eligible to do that should they
want to become vendors.
SENATOR ELTON noted their profit margin could go up
significantly.
CHAIR OGAN said that "significantly" is subjective if they have
to process 500,000 applications.
SENATOR ELTON asked Mr. Williams if he anticipates any skewing
whereby a person could evade the $15 wildlife viewing fee by
purchasing a fishing license for $10.
MR. WILLIAMS said that possibility was discussed, but ADF&G does
not believe that will be a significant problem. He said for one
thing, he assumes some folks who choose to sell these passes
will also become full vendors and sell all licenses. He noted
the problem with exempting people who have a $10 one-day fishing
license is the burden it will place on the commercial operators
who must verify that passengers have valid licenses.
SENATOR WAGONER said it would be a lot simpler to avoid the
ability to do that by raising the one-day license fee to $15.
SENATOR LINCOLN asked where the entry point is for collecting
the fees.
MR. WILLIAMS said it is an annual pass and will be purchased the
first time a person avails him or herself of a commercial
opportunity to view wildlife. The pass could be purchased from
the vendor or from other sources.
SENATOR LINCOLN asked what will happen if a person does not have
one.
MR. WILLIAMS said the person would not be eligible to take the
trip.
SENATOR LINCOLN asked who will enforce that.
MR. WILLIAMS said because the program is under Title 16, it will
be enforced in the same way the Division of Fish and Wildlife
Protection deals with other hunting and fishing license
violations.
SENATOR LINCOLN said the Governor's budget reduces the number of
fish and game wildlife protection officers. She expressed
concern that enforcement as proposed in this bill will rely on
an honor system. She pointed out that a tour operator will not
be required to sell these licenses. She then noted the Alaska
Travel Industry Association does not support this legislation
and questioned whether the Administration asked the
Association's opinion of this bill.
MR. WILLIAMS said there are different levels of support in
different sectors of the industry. He said he does not know what
the level of outreach was to specific groups. The Governor feels
this is an appropriate contribution. ADF&G believes a lot of
visitors will be happy to make this contribution because
wildlife viewing is one of the reasons they travel to Alaska.
Regarding enforcement, he pointed out there will be penalties
for the operator and the person who does not hold a license.
SENATOR LINCOLN asked where that provision is located in the
bill.
MR. WILLIAMS repeated it falls under Title 16 so it is not
specifically listed in the legislation.
SENATOR LINCOLN emphasized that someone will have to enforce it
for a person to be penalized. She suggested that with a
reduction in the number of wildlife protection officers, this
will place another burden upon a smaller staff. She then asked
if the Administration has assessed the impact this legislation
will have on the Alaska Visitors Association. She noted she has
not received one letter of support from that Association. She
asked what kind of an assessment the Administration did before
it introduced this legislation.
MS. SYDEMAN said she does not know much about the outreach that
was done, but she does know that the Alaska Wilderness,
Recreation and Tourism Association came forward and said it
supported this concept. That organization represents 300 small
operators.
SENATOR SEEKINS commented that when the Governor provided his
budget, it appeared to be targeted toward meeting a certain draw
down in the Constitutional Budget Reserve (CBR) by cutting
expenses in one place and providing additional revenue
elsewhere. In some respects, this fee was represented as a
source of additional revenue. He asked if ADF&G views it as an
additional source of revenue for the department, not necessarily
as a budget balancing mechanism to provide revenue to offset
other cuts.
MR. WILLIAMS said that ADF&G is hopeful that with this kind of
revenue generating mechanism, it could make a case that a
portion of it should go to the department for needs he described
earlier. He stated it will be a revenue generator for the state
and the Governor has stated support for tourism related wildlife
experiences.
SENATOR SEEKINS said if some of this money is used for
additional matching funds while the intent was to use it to
balance the budget, the legislature would be rather disingenuous
about how it is earmarked. He said he is supportive of more
wildlife management education programs for tourists, but he is
concerned that legislators don't misrepresent the facts that the
funds are to be earmarked for ADF&G rather than to balance the
draw down on the CBR.
CHAIR OGAN noted that he shares Senator Seekins' concern and
suggested striking that language from the bill.
SENATOR SEEKINS noted he is a wildlife viewer for all but the
one time he harvests a moose each year so he appreciates the
value of wildlife viewing and wants to enhance it as much as
possible. He repeated his concern is about the impression the
legislature may leave with SB 122 if not careful.
SENATOR WAGONER questioned whether the legislature will set a
bad precedent by allowing the separate accounting language to
remain in the bill. He pointed out that the Administration
already knows that the wildlife viewing stamp will generate so
much money and it is up to the Administration to recommend where
it wants to budget that money, therefore it is not necessary to
keep that language in the bill.
SENATOR SEEKINS commented that the tourism industry would also
like to have a slice of this pie.
SENATOR WAGONER noted that he contacted the tourism industry and
asked where the proposal is that they told legislators they
would be submitting. That proposal was a tax package that would
amount to a 2 percent sales tax on certain tourist-oriented
activities. He was told two weeks ago they would have that
package to the legislature but he has not received it so he said
he is not sure how serious they are.
CHAIR OGAN asked if SB 122 will be a "freebie" for those who
drive up the highway and never use a vendor to view wildlife. He
asked if passengers would owe the state $15 each if they saw a
moose along the highway.
MR. WILLIAMS said the issue of how to charge independent
travelers was raised on the House side. ADF&G anticipates that a
large number of those folks will purchase either a hunting or
fishing license or avail themselves of some commercial
opportunity. He said short of a tollgate at the border, it would
be difficult to collect the fee.
CHAIR OGAN considered renaming the fee and whether visitors
could file a class action lawsuit if they do not see any
wildlife.
TAPE 03-20, SIDE B
SENATOR ELTON noted the Governor is not calling it a tax, he is
calling it a user fee, which means the committee would want to
name it for its intended purpose.
SENATOR WAGONER suggested renaming it the "Alaska State
Conservation Fee." He said the word "wildlife" should be removed
because he agrees with Chair Ogan that people might not see any
wildlife.
CHAIR OGAN informed members that he did not intend to pass SB
122 from committee today.
SENATOR LINCOLN asked how many states have a similar fee and
what amount they charge.
MS. SYDEMAN said the notion of charging to set up a user-pay
system akin to the programs in place for hunting and fishing
licenses has taken a lot of forms. She said she is not aware of
fees in any other states except Louisiana, which requires a
wildlife stamp to visit fish and game state managed lands. Some
states have imposed a sales tax on items used by consumptive
wildlife users and some use a portion of the proceeds from
lotteries. Some countries charge a conservation fee of several
dollars upon exit.
CHAIR OGAN said he thought there was consensus among committee
members to rename the fee the "Alaska Wolf Control Tax" and to
change the intent language so that the money will be used for a
predator control program.
SENATOR ELTON noted that although he does not plan to make a
motion today, he would like the committee to consider amending
the bill to add, on page 2, line 12, after the word "viewing,"
"fish and wildlife protection, tourism promotion,". He explained
that the intent of the amendment would be to use the balance of
the $7 million that is not used for fish and wildlife
conservation for enforcement and tourism promotion. He felt this
money might be an appropriate source to replace those general
fund dollars. He said he would wait for a response from ADF&G
and members of the industry before he offers the amendment.
SENATOR BEN STEVENS noted that as a Senate Finance Committee
member, he is the chair of the subcommittees on the Departments
of Fish and Game and Public Safety. He told members that the
wildlife conservation portion of ADF&G's budget is $29.3
million, an increase of $1.5 million over last year. It receives
no general funds. The Division of Fish and Wildlife Protection's
budget [in the Department of Public Safety] is $15.6 million
with a decrement of about $400,000 under the Governor's
proposal. He noted the Division will lose two administrative
positions, not enforcement positions. He said from his
perspective, ADF&G is asking for a fish and wildlife viewing fee
but the Division of Fish and Wildlife Protection has not been at
the table even though it has the responsibility of protecting
fish and game for everybody. He said he'd be interested in
exploring the concept of using the increased revenues for
existing protection in a department that is already stretched to
fulfill its current obligations. He said that Section 2
[Separate accounting for wildlife conservation pass fees]
concerns him because it says the money will be appropriated for
management, viewing and education programs when the state has a
problem protecting the existing game.
CHAIR OGAN announced that with no further discussion, he would
hold SB 122 in committee and that the committee would take up HB
16.
The committee took a brief at-ease.
HB 16-STRANDED GAS DEVELOPMENT ACT AMENDMENTS
CHAIR OGAN asked Representative Fate to present the bill.
REPRESENTATIVE HUGH FATE, prime sponsor of HB 16, gave the
following explanation of the measure.
The Stranded Gas Act was enacted in 1997 but its authorization
has terminated. HB 16 reauthorizes the Stranded Gas Act until
March of 2005. The original Act was designed to apply to LNG
only. That language was removed from HB 16 so that it allows for
any form of gas. It also allows more businesses to qualify as it
reduces the entry fee. In the past, a corporation was required
to have a net worth of 33 percent of the estimated construction
cost of a project. That percentage was reduced to 10 percent in
HB 16. The line of credit equal to the amount that is not
encumbered to the project cost was also reduced from 25 percent
to 15 percent. The word "contractor" was made plural because the
state often needs more than one contractor to review the
qualified work. HB 16 also contains intent language that will
not disturb the clause that allows negotiations between a
qualified sponsor and the State of Alaska. Those negotiations
are the centerpiece of the legislation.
REPRESENTATIVE FATE said he worked with the Administration and
industry personnel on HB 16 and attempted to keep it as clean as
possible to allow the negotiations that take place between the
State of Alaska and the qualified sponsors to be as unencumbered
as possible. He believes HB 16 achieves that and embodies intent
language as a reminder that the renegotiation of contracts
cannot be forgotten. He noted that Senator Ted Stevens pointed
out the U.S. Senate may have another hurdle to clear regarding a
gas pipeline. He believes this legislation is extremely
important to show that the state is responsibly trying to
facilitate the construction of a gas pipeline. He offered to
answer questions.
CHAIR OGAN noted the original Stranded Gas Act applied to
projects north of latitude 64 degrees and was specific to a
route that parallels the TransAlaska pipeline system and the
Alaska Highway. He noted that HB 16 is silent on the Alaska
Highway route, as well as the latitude. He asked why the
pipeline route language was dropped and why it would be open to
any pipeline and any gas in the state.
REPRESENTATIVE FATE said specific legislation regarding the
route has already been enacted [AS 38.35.017] so it was
unnecessary to duplicate it. The removal of the latitude 64
degrees provision was done to encourage others to get into the
"play." At the present time, the only stranded gas is on the
North Slope.
CHAIR OGAN said that might be true but it sets a new policy. He
asked if any other projects have been discussed.
REPRESENTATIVE FATE said no other projects have been discussed.
CHAIR OGAN asked where latitude 64 degrees cuts across Alaska.
REPRESENTATIVE FATE said it parallels the Brooks Range and
includes the coal bed methane at Red Dog but nothing south of
that.
CHAIR OGAN asked if this Act could include any natural gas
projects.
REPRESENTATIVE FATE replied that it could. He explained:
...if there were a large natural gas find - an
exploratory - and they delineated a field along the
route of that pipeline, I'm sure that they would try
to incorporate that pipeline given the capacity of the
pipeline. But any find, for example in the Cook Inlet,
or somewhere that's not on that route even though it's
certainly below the 64th parallel, it wouldn't be
included in that. It's not stated in this Act but it's
just a matter of common sense that you're not going to
run a pipeline up from Cook Inlet to where the gas
pipeline comes down from Prudhoe Bay.
CHAIR OGAN asked, "Whose got a dog in the fight on the 10
percent?"
REPRESENTATIVE FATE said no one but he has been approached by
individuals who suggested that a combination of Native
corporations could get "underneath that wire." That gave him the
idea to change the net worth provision to 33 percent instead of
placing strict parameters around the negotiations at the back-
end. Even though that lowered the bar substantially, the
producers had no real objection. However, there was objection to
placing language in the bill that would set the parameters for
the negotiations. He noted the first figure he had in the bill
was 20 percent, which he changed to 10 percent in a committee
substitute to encourage more exploration and to share the risk.
SENATOR WAGONER asked Representative Fate to repeat what he said
about Cook Inlet.
REPRESENTATIVE FATE said in response to Chair Ogan's question
about the 64th latitude, he was suggesting that if a large
enough gas field was found along the pipeline, the company would
want to tap into the pipeline if it had the capacity. If the
find is in Cook Inlet, it would be impractical to run a line up
to the other because of the distance.
CHAIR OGAN noted that the Joint Natural Gas Pipeline Committee
had many discussions about open season and how to ensure that
others can access the gas line but the bill is silent on that
issue.
REPRESENTATIVE FATE said the bill is silent on that issue
because that will have to be negotiated and because it is
unclear whether the regulatory authorities will weigh in on that
issue. He said he hopes the Federal Energy Regulatory Commission
(FERC) will issue an opinion about which authorities will be
involved, how they conflict and how their roles can be
coordinated.
CHAIR OGAN asked who will be involved in the open season
negotiations.
REPRESENTATIVE FATE answered the State of Alaska and the
qualified sponsors.
CHAIR OGAN expressed surprise and said he thought that was an
internal matter.
REPRESENTATIVE FATE said his understanding is that it can be
negotiated and that FERC will not determine the open season.
SENATOR ELTON referred to Section 5 on page 3 and called it a
"double barreled edition." He said the applicant can reimburse
the state for reasonable expenses according to language on line
24, but those expenses are capped at $1.5 million. He pointed
out that both of those provisions are additions to existing law.
He asked if anyone has determined that any expenses over $1.5
million would be unreasonable.
REPRESENTATIVE FATE said the House labored with that section and
considered the words "redundant," "non-redundant" and
"reasonable." The amendment adopted on the House floor contained
the word "reasonable." The House does not want the state or
contractor to duplicate bills and it wants to make sure that any
overlap of costs is reasonable, for example, in a situation
where one expert might be used to corroborate the work of
another one.
SENATOR ELTON again asked if anyone made the determination
during those discussions that any expense over $1.5 million
would be unreasonable.
CHAIR OGAN noted that the maximum is $1.5 million for each
application. He asked if it could apply more than once.
REPRESENTATIVE FATE responded that amount applies for each
application.
SENATOR ELTON asked, "So you could have a series of expenses,
each of which would be a separate application?"
REPRESENTATIVE FATE replied, "Not to exceed - correct, through
the Chair, not to exceed $1.5 million for each application."
SENATOR LINCOLN referred to Section 1 on page 1, the intent
section, and asked why it was included as intent language since
no one can be held accountable to it.
REPRESENTATIVE FATE explained that if it was included as part of
the bill and was not intent language, it would begin to set the
sideboards of the negotiations. He explained the intent language
is basically a reminder of something that is usually done. He
stated:
...To place that and to force any type of sideboards
that have to be negotiated was not acceptable. Very
frankly, it [began] to muddy the water because you
begin - and this is what we're very good at in the
Legislature, is trying to assert our will into things
rather than to let the negotiating process take place
in good faith.
SENATOR SEEKINS asked what benefits would accrue to a qualified
project.
CHAIR OGAN explained that the original legislation was passed to
enable the state to negotiate a payment in lieu of taxes, an
approach recommended by a consultant named Van Meers who
cautioned the project was front-end loaded with too many taxes.
A major stumbling block to making a project economically
feasible was the requirement to pay all of the upfront money
before the project made a nickel. The idea was to negotiate a
payment in lieu of taxes to compensate the communities directly
affected by the impact of the pipeline. The discussion
surrounding the original legislation was to pick up those costs
at the back-end when the project was amortized and making money.
SENATOR SEEKINS said it is important to reiterate that because
many people do not understand the concept. He then questioned
the phrase in the intent section that says "the qualified
sponsor group may develop and enter into project labor
agreements with appropriate collective bargaining
organizations..." and noted that should be assumed.
REPRESENTATIVE FATE repeated the intent language is just a
reminder.
SENATOR SEEKINS said he wanted to distinguish that because he is
not aware of any legislation that forbids a sponsor group from
entering into a project labor agreement.
SENATOR ELTON said he is still concerned about the $1.5 million
limit. He pointed out the Department of Revenue's fiscal note
leads him to believe that the state agencies are not clear about
whether the limit is per application. He asked that the
committee double-check with the Department of Revenue.
CHAIR OGAN said that Department of Revenue staff would be
available to answer questions via teleconference.
SENATOR LINCOLN noted a concern was raised on the House side
that this bill is too broad and could give incentives to
projects that don't need them, for example projects in areas
where the gas is not stranded. She asked if that is a
possibility.
REPRESENTATIVE FATE said he does not believe so because the
project must be qualified and the qualified sponsor must have a
certain level of capitalization. In addition, the project must
produce at least 500 BCF of gas so it sets benchmarks to prevent
a "fly-by night" operator to get in on this type of activity.
CHAIR OGAN said he shares Senator Lincoln's concerns because the
requirement to produce 500 BCF in 20 years is so low that it
could provide a two-year window for a project that might not
even be related to North Slope gas to negotiate a payment in
lieu of taxes. He questioned whether the bill may have a lot of
unintended consequences.
REPRESENTATIVE FATE said the producers have already acknowledged
that negotiations will have to take place but at such a level of
capitalization that even with the bar lowered to encourage
others to get in, very few Alaska companies could meet it, even
with this piece of legislation.
CHAIR OGAN said Representative Fate is missing the point because
this legislation is not specific to the North Slope anymore. He
suggested inserting language on page 2, line 15 to read, "the
transportation of North Slope natural gas by a." He noted that
would mean the project has to be principally, not exclusively,
involved in North Slope natural gas.
REPRESENTATIVE FATE said he would not object to that change. He
said HB 16 was his attempt to clean up the language and allow
and encourage exploration of other hydrocarbon prospects.
CHAIR OGAN said his intent is to prevent creative lawyers from
applying the incentives to projects they were not intended for.
SENATOR ELTON said nothing in the bill compels the state to
enter into a contract so, if the state enters into negotiations
for a questionable project, the terms of the contract would be
fundamentally different than they would be with a major company
from the North Slope. Furthermore, the fact that the contracts
will be given to the legislature for confirmation provides
additional protection. He asked if his understanding is correct.
CHAIR OGAN said he is correct in that any contract would come
before the legislature for approval.
SENATOR ELTON said he believes the legislature needs to be
cautious about opening the door too wide but, to some extent, it
has to rely on the good faith of the administration that is
negotiating the contracts.
CHAIR OGAN pointed out that Senator Elton has defended the
Governor twice today.
REPRESENTATIVE FATE noted the deadline for applications will
limit the number of applicants. That deadline was extended one
year from the original date to allow other Alaska corporations
that could meet the bar to do so.
CHAIR OGAN said although that is true, once a precedent is set
in legislation, an applicant with a catch-all project would only
have to extend the date. There being no further questions, he
informed members that he would hold this legislation until
Wednesday to give members time to think about possible changes.
He then told members he was recently in Washington, D.C. and met
with Senator Murkowski's chief of staff who has been asked what
Alaska is doing to help commercialize natural gas. The staffer
was not aware the Legislature was working on this legislation.
He then took public testimony.
MS. WENDY KING, representing Conoco-Phillips, stated support for
HB 16. Conoco-Phillips believes a three-pronged strategy to make
a gas pipeline a reality is necessary. First, federal
legislation should streamline the permitting process. Second,
federal fiscal legislation should provide insurance against the
risk of extreme price volatility. Third, state legislation
should reauthorize the Stranded Gas Act. As currently written,
the Stranded Gas Act only applies to an LNG project and not to a
gas pipeline. It also had a date of June 30, 2001 by which
companies had to file applications. If it were not for those two
limitations, companies that want to build a gas pipeline could
be negotiating with the state today under the Act, creating new
jobs. She repeated support for HB 16.
CHAIR OGAN asked why no one from BP or Exxon is available to
testify.
MS. KING said she could not comment.
SENATOR ELTON asked the representatives from the Department of
Revenue to address his concern about whether the $1.5 million
cap is per application.
MR. DAN DICKINSON, Director of the Tax Division, Department of
Revenue, said the language in the statute is the correct
language. He pointed out in the fiscal note analysis the words
"the project applicant(s)" should have been "a project
applicant." The division believes there will be only one
application, but there could be more.
SENATOR ELTON said his concern is that in the statutory
language, the companies are called "applicants." Therefore, when
the word "application" is used, he assumes it would be up to the
companies to bundle if they wanted to. In that case, the state
could not be reimbursed for costs over $1.5 million.
MR. DICKINSON said he believes if multiple companies qualify as
the sponsor of a single project, they would submit a single
application. He noted that AS 43.82.120 says that a qualified
sponsor or qualified sponsor group may submit an application.
TAPE 03-21, SIDE A
SENATOR ELTON said his concern is that two thresholds are being
applied: one a reasonable threshold; the other is reasonable up
to $1.5 million. He said it sounds as though that may not be of
concern to others.
CHAIR OGAN said he believes the committee needs to establish on
the record that the legislature's intent is that each
application cannot exceed $1.5 million but it does not limit it
to only one application. He stated, "We may wish to put language
in there that there can be more than one application just to
make it really clear so creative lawyers don't get creative."
SENATOR ELTON suggested getting that language from Mr. Dickinson
rather than himself.
MR. DICKINSON drew members' attention to AS 43.82.160, which
addresses multiple applications for similar or competing
qualified projects and said HB 16 says the limit per application
is $1.5 million.
CHAIR OGAN felt that clarified the issue.
MR. MARK MYERS, Director of the Division of Oil and Gas,
Department of Revenue, stated support of the project. The
division recognizes, particularly with the North Slope project,
with over 35 TCF approved and over 100 TCF of additional
potential gas, the gas pipeline will enable development of
Alaska's incredible gas resources for at least the next 50
years. He stated HB 16 sets the stage for broad-based technical
negotiations between project sponsors and the administration.
CHAIR OGAN said there is a noticeable difference in the number
of people testifying today and the number that testified at the
last Joint Natural Gas Pipeline Committee hearing. He asked Mr.
Myers his read on that change.
MR. MYERS said the state is looking at a good opportunity for
development of gas due to higher gas prices. He noted the last
year has illustrated that supply in North America is
problematic. Overall, people are more optimistic about a gas
line, especially with the war in the Persian Gulf. He said the
three major producers on the North Slope are very interested in
the project, as are individual producers. He could not explain
why they were not at today's meeting, but he believes they are
more optimistic about the project now than they have been over
the last few years.
CHAIR OGAN pointed out that HB 16 is written so that it grants a
short-term window of two years and makes no mention of a route
or the location of the gas. He reads that to mean a company that
wants to build a pipeline over the next two years could apply
for the incentives as long as the company could produce 500 BCF
over the next 20 years. He asked Mr. Myers if he agrees.
MR. MYERS said he does agree. The standard is broad; it applies
statewide and includes GTL and LNG projects. He said he agrees
with Representative Fate's statement that the state could not
permit an over-the-top pipeline under AS 38.35.017(b), which
does not allow the commission to issue a lease for a pipeline
across state land in or adjacent to the Beaufort Sea for
pipeline right-of-way purposes to authorize construction or
operation of a natural gas pipeline. However, that is not to
say fiscal terms on a pipeline could not be negotiated or that
one could never be permitted under current law.
CHAIR OGAN asked if that would not prevent the federal
government from doing it, although it can't traverse ANWR and
would have to put a pipeline three miles off of the coast to be
in federal water.
MR. MYERS said that is correct. The pipeline would have to cross
state waters at some point and get from Prudhoe Bay to Point
Thompson and over.
CHAIR OGAN asked if GTLs would be transported in the TransAlaska
pipeline.
MR. MYERS said under the definition of the project, a GTL or LNG
project would qualify. He referred to subsection (C) on page 2,
line 19.
CHAIR OGAN asked if a qualified group could negotiate tax breaks
on a GTL plant that might affect the North Slope Borough.
MR. MYERS said that could be done.
CHAIR OGAN said it is his opinion that GTLs should be talked
about in a separate discussion. He referred to language on page
3, lines 11 and 12, and asked who "has a dog in that fight?"
MR. MYERS said he believes Representative Fate addressed that
question when he said the threshold is high enough to require
parties to be very serious about the project and have
significant capitalization. He said the intent was to try to be
inclusive to capture more potential sponsors.
CHAIR OGAN asked if Anadarko would qualify.
MR. MYERS said depending on the project, he believes that could
happen.
CHAIR OGAN asked if the North Slope Regional Corporation or Cook
Inlet Regional Corporation could qualify.
MR. MYERS replied, "Mr. Chairman, I believe a consortium of
Native corporations certainly would have the net worth on
several potential projects."
CHAIR OGAN asked if Mr. Myers could think of anyone else who
would qualify.
MR. MYERS said that some of the major pipeline companies outside
of the state could.
SENATOR ELTON said he has no problem with the bill as written
but the bill cannot be heard in the Senate Finance Committee on
Thursday unless it moves from committee today.
CHAIR OGAN said he would like to work with the bill sponsor on a
few details so he will hold it in committee one more day.
CHAIR OGAN then told members it is an honor to work with them as
he feels the Senate Resources Committee members have some of the
brightest minds in the Legislature and ask very good questions.
There being no further business to come before the committee,
CHAIR OGAN adjourned the meeting at 5:33 p.m.
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